Received from Chrsitchurch Driver [CD]
Fri, 11 Mar 2016 at 1:35 a.m.
Your correspondent is going to meander down some tangential subdivision side streets tonight (not the main collector road, the excavator won’t fit on those….) and consider the curious case of Stonewood Homes.
It was probably inevitable given the very shallow gene pool that South Island companies fish in for independent directors, that a name would pop up that had also had some previous form with Delta.
However, before we excavate that particular trench, let’s consider why the shoring gave way on Stonewood, why the temporary support from the bank buckled and the subsequent structural failure – (the engineering metaphors are flying thick and fast tonight….)
Your correspondent is very bemused at the vast sums that a large number of building and engineering companies seem to be able to generate – in the negative. An internet search shows a long and regular list of failures. (Delta Civil Division would doubtless have joined them had it not had ratepayer funds to prop it up). Hartner Construction in 2001, about $20M, Wellington Construction in 2012 (unknown), Mainzeal Construction in 2013 (between $60-130M, dependent on if related party transactions can be unwound) and, closer to home, Southland’s own Amalgamated Builders (also with a branch in Dunedin) who managed to lose $20M in just two years when they bought a reputable Auckland company, Goodall Construction, renamed it Goodall ABL and then proceeded to destroy it in 2001.
There is some illuminating information online that shows the insane amount of risk that companies in the construction sector assume for what appears to be very little reward.
In the ABL Goodall case, property commentator Bob Dey described Goodall ABL as “a victim of trying to win market share on no margin, with a maximum guaranteed price contract in place”. Quite why anyone would seek to perform somewhere between $60-80M of work in two years for no return sounds like Delta-level stupidity, and certainly, the result was the same : ABL Goodall went so comprehensively broke, mainly with subcontractors’ money, that it was a major catalyst for the Government of the day to introduce the Construction Contracts Act in 2002 which provided some protection for Subcontractors. Proof that Southlanders do have some uses other than milking cows (readers, I jest).
Delta may yet provide compelling evidence for the Government to remove the “power of general competence” that Territorial Authorities received from the Government in 2002 that started many down the path towards illusory piles of gold that vanished in a mirage, along with a lot of public funds.
Memo To Mr Crombie : The CCC have admitted defeat and are trying to sell their Delta equivalent, City Care : why not join up and make it a two-for-one deal ?
But back to Stonewood. A trio of heavy hitters arrived in February 2014 to help fix the Stonewood Homes brand. In the press release it was noted that in 2013, Stonewood had consented 407 homes, had a turnover of $133M, and was aiming for 500 consents in 2014.
Your correspondent now will do something unheard of – making excuses for Delta…. as follows :
Building houses is not the same as civil contracting or commercial building. Those sectors all indulge in unique one off projects, with different specifications, different designers and engineers who have different standards. Lots of risk with ground conditions, legal disputes are legion.
But “group” housing is just different variations on the same cookie cutter. Standard designs, tweaked a little here and there, flat sites, lots of repetition, production line type processes. Houses started and finished around 14-16 weeks. Deposits before you start, a sales force to keep the numbers flowing. Any amount of back costing and analysis off repetitive designs to check what the numbers should be. It’s all been done before, lots of other companies are doing it so “benchmarking” your company against your competitors is easy.
Stonewood weren’t building difficult or expensive homes : Their average house cost around $325,000 in 2013. (Turnover of $133M for 407 homes).
Receivers KordaMentha confirmed that Stonewood had built up “significant” debt since the earthquake. Let us assume that Stonewood’s losses began in 2012 continuing in 2013, 2014, 2015. The loss is currently $30M. Your correspondent understands that the ASB is owed $5M and that typically, of the 110 houses underway at any one time, only 30 were profitable, and this was known within the company.
That Stonewood were unable to make any money at all, but instead went deeper into debt over a four-year period of huge demand is certainly testament to some Delta-level management deficiencies. One, or one and a half years of losses is grave but understandable, two to three is indefensible, and four years just plain carelessness !
Assuming an average turnover of about $115-120M per year (ie a peak turnover of $133M in 2013), this means that each year they lost $7.5M on average. (It was probably less in 2012, a lot more in 2015).
Put another way, on every house they built, over a four-year period, they lost around $21,000. Yes, they can definitely have a seat at the Delta table. And one Stonewood Director has sat at that table before, and that is Mr Jim Boult.
Mr Boult, you may recall, had a 50/50 Joint Venture (JV) with Delta on the failed Luggate Development, where Delta lost $5.9M. Delta’s terms there were similar to Noble : A $5M advance to cover the subdivision work, payable only when the sections were sold.
Mr Boult utilised a valuer on behalf of the JV who had previously valued the land for his company. The valuer, in calculating the value of the land assumed a figure of $55,000 per section for Development costs. The actual cost was $105,000 per section. The valuer assessed the value of the land Delta bought a 50% share in, at $10.7M. There were potentially 172 sections that could be developed on the land. Six of the 172 sections were sold. The remaining land, with (a relatively small amount of) Delta’s improvements, was eventually sold…. for $1.5M. This information is all contained in the Auditor-General’s Report (14 March 2014).
A small but noteworthy detail included in the Auditor-General’s report was that the terms of the Joint Venture meant that Delta staff were not paid for any time they spent on the JV or the project, unless it was directly related to the Civil Work. A Project Management firm, Signal, was employed to manage the project. However Mr Boult sought and received $5,000 per month “for his time” spent on the Luggate JV.
Back to Stonewood, it turns out that Mr Boult was unable to make any difference to turn around Stonewood’s fortunes in 2015. Mr Boult’s enthusiasm for Stonewood : “I am truly delighted to be the chair and help guide the company in its future direction” lasted just 12 months. Nonetheless he obviously saw something he liked at Stonewood as he confirmed last week that he had quit as a Director of Stonewood on 1 February 2016, because, in concert with some employees of Stonewood and some franchisees, he was trying to buy Stonewood. This seems unusual behaviour for the chair of a large company, but then your correspondent is not a member of the Institute of Directors, and is uncertain of the usual directorial protocols about directors or chairmen of the board trying to buy a company they just resigned from last week. Perhaps a reader experienced in such matters could provide enlightenment.
Yes readers, I can sense your impatience : Join the dots you say ! This correspondent’s opinion, and it is only an opinion from the outside looking in, is that Mr Boult, was looking to buy not only Stonewood, but is most likely involved with a mortgagee sale bid to purchase the Noble Subdivision at Yaldhurst. The intention being that Stonewood would be the builder of the subdivision, both effectively controlled by Mr Boult.
Mr Boult knows the subdivision business, and he now has an inside view of how housing companies are run (or more accurately, how not to run one).
Despite Mr Boult’s defeat at the hands of the Brothers Chow in respect of Stonewood, a bid for Noble may well be attractive to him.
Now given Mr Boult’s history with Delta, it would seem highly likely that if this were the case, there would have been some contact between Mr Boult and his people and Delta.
Can Delta or its Directors or Mr Crombie confirm ? And of course as is the refrain, that no more public funds will be put at risk ?
New Zealand Companies register: Delta Utility Services Limited (453486)
█ Directors: David John Frow (appointed 25 Oct 2012), Trevor John Kempton (01 Nov 2013), Stuart James McLauchlan (01 Jun 2007), Ian Murray Parton (25 Oct 2012)
Related Posts and Comments:
● 10.3.16 Noble Subdivision next on the shopping list !!! You couldn’t…
● 6.3.16 Delta #EpicFail —Noble Subdivision : Tea & Taxing Questions
● 6.3.16 Delta #EpicFail —Nobel Subdivision : A Neighbour responds
● 5.3.16 Delta #EpicFail —Noble Subdivision —Epic Fraud
● 4.3.16 Delta —Noble Subdivision #EpicStorm Heading OUR WAY
● 4.3.16 Delta #EpicFail Noble Subdivision : Councillors know NOTHING
● 2.3.16 Delta #EpicFail Noble Subdivision : A Dog, or a RAVING YAPPER?….
● 1.3.16 Delta #EpicFail… —The Little Finance Company that did (Delta).
● 29.2.16 Delta #EpicFail Noble Subdivision : NBR interested in bidders
● 28.2.16 Delta #EpicFail Noble… If I were a
rich man / Delta Director
● 27.2.16 Delta #EpicFail Noble Subdivision Consent : Strictly Optional
● 27.2.16 Delta #NUCLEAR EpicFail —Noble Subdivision : Incompetent…
● 25.2.16 Delta #EpicFail: Mayor Cull —Forced Sale Fundamentals 101
● 24.2.16 Delta #EpicFail —Noble Subdivision : Cameron, Crombie & McKenzie
● 23.2.16 DCC: DCHL half year result to 31 December 2015
19.2.16 Delta: Update on Yaldhurst subdivision debt recovery
15.2.16 Delta / DCHL not broadcasting position on subdivision mortgagee tender
30.1.16 DCC Rates: LOCAL CONTEXT not Stats —Delta and Hippopotamuses
● 29.1.16 Delta #EpicFail —Yaldhurst Subdivision ● Some forensics
● 21.1.16 Delta #EpicFail —Yaldhurst Subdivision
21.1.16 DCC LTAP 2016/17 budget discussion #ultrahelpfulhints
10.1.16 Infrastructure ‘open to facile misinterpretation’…. or local ignore
15.12.15 Noble property subdivision aka Yaldhurst Village | Mortgagee Tender
21.9.15 DCC: Not shite (?) hitting the fan but DVL
20.7.15 Noble property subdivision —DELTA #LGOIMA
1.4.15 Christchurch subdivisions: Heat gone?
24.3.15 Noble property subdivision —DELTA
23.3.15 Noble property subdivision: “Denials suggest that we have not learned.”
17.3.15 DCC —Delta, Jacks Point Luggate II…. Noble property subdivision
● Gold Band Finance Prospectus No. 31 Dated 22 April 2015
View this 126pp document via the NZ Companies website at: https://www.business.govt.nz/companies/app/ui/pages/companies/321896/documents — go to Prospectus uploaded 23 Apr 2015 14:33
● 14.5.14 (via DCC website) Larsen Report February 2012
A recent governance review of the Dunedin City Council companies was conducted by Warren Larsen.
● 20.3.14 Delta: Report from Office of the Auditor-General
Inquiry into property investments by Delta Utility Services Limited at Luggate and Jacks Point
█ For more, enter the term *delta* in the search box at right.
Posted by Elizabeth Kerr
Election Year. This post is offered in the public interest.
*Images: (top) stonewood.co.nz – Chow Bros | stuff.co.nz – Jim Boult by Stacy Squires